Amoco alums take on Big Oil

Local startups like Elevance turning crops into petrochemical substitutes

While others struggle to turn a profit squeezing fuel out of corn, K'Lynne Johnson is turning crops into chemicals that sell for three times as much as ethanol.

The CEO of Elevance Renewable Sciences Inc. in Bolingbrook is one of several local alums of BP/Amoco challenging Big Oil's petrochemicals with chemicals made from renewable sources like soybean oil. Elevance's chemicals go into everything from lipstick to industrial lubricants.

“It's fun when you're creating new space instead of reshuffling,” says Ms. Johnson, 42, who ran a $3-billion specialty-chemicals division of Innovene, the Chicago-based BP PLC spinoff sold four years ago to U.K.-based Ineos Holding Ltd. “This is the kind of disruptive technology you could build a company around.”

Elevance and other renewable-chemicals startups may have hit on a formula that's sustainable not just environmentally but also financially. Making agricultural feedstocks into chemicals costs about as much as producing ethanol, but the chemicals sell for twice as much. That makes the business profitable without the taxpayer subsidies that prop up the ethanol industry.

The numbers suggest a more viable business model for a new industry centered in the Chicago area, which has a long history in petrochemicals. Renewable chemicals offer not only the prospect of new jobs for local workers but also a new market for Illinois farmers.

“(They're) extremely vital to the area,” says Seth Snyder, a biofuels researcher at Argonne National Laboratory in Darien.

Ms. Johnson and others are capitalizing on financial dynamics well-known to oil industry bean counters: 90% of crude oil goes into gasoline, but 40% of the profits come from petrochemicals.

By targeting the $500-billion market for specialty chemicals, they aim to capture the profits that have eluded ethanol producers. While a gallon of fuel made from corn might sell for $1.65, a similar amount of industrial chemicals made at roughly the same cost might fetch twice as much from a plastics maker. Elevance Executive Vice-president of sales Andy Shafer says some of its soy-based chemicals sell for up to $4.50 per gallon.

“Venture-capital firms have sunk money in, and you're seeing the petroleum people coming into new businesses with contacts and understanding of how the business works,” says Ross Korves, a Mount Prospect economic policy analyst formerly with the American Farm Bureau Federation.

Other startups include Chicago-based TetraVitae Bioscience Inc., which plans to convert unprofitable ethanol plants to chemical production, and Vertec BioSolvents Inc. in Downers Grove, which is making solvents from corn and soybeans instead of petroleum.

Ms. Johnson and her chief operating officer, Mel Luetkens, are BP alums, as is TetraVitae CEO Jay Kouba. Others include Janet Roemer, president of San Diego-based Verenium Corp., and John Melo, CEO of Amyris Inc. in Emeryville, Calif.

Elevance, with 60 employees and more than $10 million in sales, is the furthest along locally. It plans to double its staff in the next year, adding chemists and engineers. Ms. Johnson says the company overall is not yet profitable, but its individual product lines are making money. Customers include Dow Corning Corp., which buys soy-based substitutes for petroleum jelly and paraffin used in lotions, lipsticks and other personal-care products.

Elevance's technology was developed by Nobel Prize recipient Robert Grubbs at the California Institute of Technology and commercialized by Minneapolis-based Cargill Inc., a minority owner. Though it uses plant oils, the process requires far less energy than ethanol, making products cost-competitive.

Texas-based TPG, a venture and private-equity fund, invested $45 million in 2007 to launch the company. It chose Ms. Johnson, whom it had hired to evaluate the deal, as chief executive officer.

With degrees in organizational behavior from Brigham Young University, she rose fast through Amoco and BP organizations dominated by engineers. As the youngest member of Innovene's management, she was called “the kid.” A Utah native who grew up skiing, Ms. Johnson quickly adapted to the Midwest by taking up half marathons and marathon relays.

She and Elevance are at a critical stage of a long race, with a goal of $1 billion in sales by 2016. The company is building the world's largest biorefinery, in Indonesia, in a joint venture with Singapore's Wilmar International Ltd. Ms. Johnson also is scouting sites for a U.S. facility, which she hopes to open by the end of 2013. Illinois is a contender for that facility, as well as for one planned by TetraVitae, which aims to convert an ethanol plant to chemicals by 2012.

The next hurdle is raising money for plants large enough to produce chemicals in the quantities big customers demand. If they manage that, renewable-chemicals companies will face the ultimate test: competing against petrochemicals from oil companies able to wage price warfare against fledgling rivals.

Ms. Johnson acknowledges that customers are “skeptical that there are very many technologies that can deliver cost and performance, and they're right. There have not been very many technologies that have been able to deliver. We believe we can.”